RAMESHKUMAR RAWAL, MUMBAI v. ITO 14(1)(2), MUMBAI

ITA 6841/MUM/2008 | 2004-2005
Pronouncement Date: 21-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 684119914 RSA 2008
Assessee PAN AABPR3423R
Bench Mumbai
Appeal Number ITA 6841/MUM/2008
Duration Of Justice 1 year(s) 5 month(s) 20 day(s)
Appellant RAMESHKUMAR RAWAL, MUMBAI
Respondent ITO 14(1)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 21-05-2010
Date Of Final Hearing 11-03-2010
Next Hearing Date 11-03-2010
Assessment Year 2004-2005
Appeal Filed On 01-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH MUMBAI BEFORE SHRI N V VASUDEVAN JUDICAL MEMBER AND SHRI B RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO.6841/MUM/2008 (ASSESSMENT YEAR: 2004-05) RAMESHKUMAR RAWAL (PROP RAMESH ENTERPRISE) 11 OVAL ADI VITHAWALDI 3 RD FLOOR MUMBAI -400 002 PAN: AABPR 3423 R ITO 14(1)(2) MUMBAI APPELLANT RESPONDENT APPELLANT BY: SHRI N M PORWAL RESPONDENT BY: SHRI T T JACOB ORDER PER B RAMAKOTAIAH AM THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF T HE CIT (A)-XIV DATED 17.9.2008. THE ASSESSEE RAISED 3 DETAILED/ E LABORATE GROUNDS OF APPEAL. GROUND NO.1 IS WITH REFERENCE TO REJECTION OF BOOKS OF ACCOUNT GROUND NO.2 IS ESTIMATION OF GROSS PROFIT (GP) WHER EBY MAKING ADDITION OF RS 4 81 078/- AND THIRD ONE GENERAL IN NATURE WHIC H CONTAINED THE SUBMISSIONS ON THE ABOVE TWO. THE ISSUE IN ASSESSEE S APPEAL IS THAT ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AN D ESTIMATED THE GP WHEREBY MAKING AN ADDITION OF AMOUNT OF RS 4 81 078 /- WHICH WAS CONFIRMED BY THE CIT (A). 2. THE ASSESSEE WAS A WHOLESALE CLOTH MERCHANT AND HAS DONE BUSINESS ONLY IN THIS YEAR PERTAINING TO AY 2004-05 . THE ASSESSEE STARTED THE BUSINESS AS A PROPRIETOR IN THE WHOLESALE CLOTH BUSINESS AND THIS IS THE FIRST YEAR AND ALSO LAST YEAR OF THE BUSINESS. THE ASSESSEE HAD DISCLOSED A GROSS PROFIT OF 3.24 PER CENT ON SALE T URNOVER OF RS 1.28 ITA 6841/MUM/2008 RAMESHKUMAR RAWAL 2 CRORES. THE TOTAL PURCHASES WERE RS 1.23 CRORES. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PURCHASED ITS YARN AN D GRAY CLOTH FROM 13 PARTIES OUT OF WHICH 8 PARTIES WERE FROM BHIVANDI. TO VERIFY THE GENUINENESS OF PURCHASES HE ISSUED NOTICES U/S 133 (6) AND FOUND THAT 9 PARTIES INVOLVING PURCHASES OF RS 41.44 LAKHS HAVE NOT RESPONDED TO THE NOTICES. THE ASSESSEE WAS ASKED TO SUBSTANTIATE TH E PURCHASES. THE ASSESSEE FILED THE COPIES OF LEDGER ACCOUNTS AND OT HER DETAILS. AO ASKED FOR PRODUCTION OF PARTIES BUT THE ASSESSEE FAILED TO FURNISH THE PARTIES AND FURNISHED LATEST ADDRESS OF THE PARTIES. THE ASSES SING OFFICER REJECTED THE BOOKS OF ACCOUNTS AND RESORTED TO ESTIMATION OF GRO SS PROFIT AT 7% AS AGAINST 3.24% SHOWN BY THE ASSESSEE WHICH RESULTED IN AN ADDITION OF RS 4 81 078/-. 3. BEFORE CIT (A) THE ASSESSEE TRIED FURTHER AND O BTAINED CONFIRMATION LETTERS FROM SIX PARTIES AND COULD ESTABLISH CONTAC TS WITH THREE OUT OF THE SIX PARTIES AND FILED CONFIRMED LEDGER COPIES FROM THEM. BALANCE PARTIES HE COULD NOT CONFIRM. CIT (A) CONSIDERING THE DETA ILED SUBMISSIONS OF THE ASSESSEE AND FACTS OF THE CASE APPROVED THE ASSESSI NG OFFICERS ACTION IN REJECTING THE BOOKS OF ACCOUNT AND RELYING ON THE J UDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KACHWALA GEMS VS JCIT 288 ITR 10 BY DISCUSSING THE ISSUE VIDE PARA 6 CONFIRMED THE ADD ITION. 4. THE LEARNED COUNSEL CONTESTED THE ESTIMATION OF GP ON TWO COUNTS. WITH REFERENCE TO THE REJECTION OF BOOKS IT WAS HI S SUBMISSION THAT THE ASSESSEE HAS FURNISHED COMPLETE DETAILS OF QUANTITA TIVE TALLY OF PURCHASE AND SALE OF GOODS AND CONFIRMATION TO A LARGE EXTEN T. IT WAS HIS SUBMISSION THAT THE ASSESSEE HAS SUBMITTED THE BANK ACCOUNT STATEMENTS FURNISHED THE AUDITED ACCOUNTS AND VARIOUS INVOICES IN SUPPORT OF PURCHASES AND SALES AND JUST BECAUSE FEW PARTIES DI D NOT RESPOND THE ASSESSING OFFICER SHOULD NOT HAVE RESORTED TO REJEC TION OF BOOKS OF ACCOUNT. THE ASSESSEES CONTENTION WAS THAT FOR TH E PURPOSE OF INVOKING ITA 6841/MUM/2008 RAMESHKUMAR RAWAL 3 THE PROVISIONS OF SECTION 145(3) IT WAS NECESSARY T O ESTABLISH THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE INC ORRECT AND INCOMPLETE. IT WAS THE CONTENTION THAT IF PURCHASE PARTIES COULD NOT BE CONFIRMED THE BOOKS OF ACCOUNTS CANNOT BE REJECTED MERELY ON THAT GROUND. THE LD.COUNSEL RELIED ON THE DECISION OF T HE ITAT IN THE CASE OF BANGALORE TEXTILE INDUSTRY 49 ITD 177 AND JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF M K BROTHERS 163 ITR 249. IT WAS ALSO FURTHER SUBMITTED THAT RELYING ON THE PRINCIPLES ESTABLISHE D BY THE HONBLE SUPREME COURT IN THE CASE OF ANIS AHMED & SONS 297 ITR 441 MERELY BECAUSE LETTERS COULD NOT BE SERVED ON FEW PARTIES THE ASSESSEES BUSINESS TRANSACTIONS CANNOT BE DISBELIEVED AND NO ADVERSE INFERENCE COULD BE DRAWN. IT WAS HIS SUBMISSION THAT THERE I S NO CASE FOR REJECTION OF BOOKS OF ACCOUNT AND INVOKING THE PROVISIONS OF SECTION 145. 5. CONTINUING WITH THE ARGUMENTS HE FURTHER STATED THAT THE ASSESSING OFFICER IS NOT CORRECT IN ESTIMATING THE GP AT 7%. IT WAS HIS CONTENTION THAT ASSESSEES HAD TRANSACTED IN GRAY CLOTH AND YA RN THE TURNOVER OF GRAY CLOTH WAS RS 49.12 LAKHS ON WHICH GROSS PROFIT OF RS 3 00 046 AT 6.11% WAS EARNED AND THE TURNOVER OF YARN CLOTH WAS RS 78.89 LAKHS ON WHICH GROSS PROFIT OF RS 1 81 998 WAS EARNED AT 2.3 1%. IT WAS ALSO HIS SUBMISSION THAT THERE IS ALSO NO OPENING OR CLOSING STOCK AND ALL THE PURCHASES OF YARN WERE MADE FROM THREE PARTIES WHO CONFIRMED THE TRANSACTIONS TO THE ASSESSING OFFICER. HENCE THER E IS NO NEED TO REJECT THE TRANSACTIONS AS SUCH AND ESTIMATE THE PROFIT. 6. ON POINTING OUT THAT THE GROSS PROFIT AS SHOWN I N PAPER BOOK PAGE 4 COMES TO RS 4.82 LAKHS WHEREAS THE GP IN THE P&L A CCOUNT PLACED IN PAPER BOOK AT PAGE 2 INDICATES ONLY OF RS 4 15 077/ - THE LEARNED COUNSEL FILED A RECONCILIATION STATEMENT INDICATING THAT T HE SALES COMMISSION AT RS 45 960 AND DIRECT EXPENSES OF RS 1 13 293/- ARE TO BE EXCLUDED IN ARRIVING AT THE GP. THE LEARNED COUNSEL SUBMITTED THAT BOTH ON FACTS ITA 6841/MUM/2008 RAMESHKUMAR RAWAL 4 AND ON LAW THERE IS NO CASE FOR REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF INCOME. HE ALSO RELIED ON VARIOUS CAS E LAW PLACED BEFORE THE CIT(A) IN FIRST APPEAL. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER SUBMITTED THAT ASSESSEE HAS NOT FURNISHED CONFIRMATIONS WITH REFER ENCE TO THE VARIOUS PURCHASES AND ALSO NOT PROVED THAT AMOUNTS HAVE BEE N PAID THROUGH ACCOUNT PAYEE CHEQUES EVEN THOUGH THE CLAIM WAS MAD E. SINCE ASSESSEES TRANSACTIONS COULD NOT BE VERIFIED ASSE SSING OFFICER WAS CORRECT IN INVOKING THE PROVISIONS OF SECTION 145 A ND REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATING THE GP. HE SUPPORTED THE O RDERS OF THE ASSESSING OFFICER AND CIT (A). 8. THE ASSESSEE HAD PLACED THREE VOLUMES OF PAPER BOOKS OF VARIOUS DETAILS FURNISHED BEFORE THE LOWER AUTHORITIES AND ALSO VARIOUS CASE LAWS RELIED UPON BY THE LEARNED COUNSEL. THE LEARNED CO UNSEL ALSO PLACED ON RECORD THE SALIENT FEATURES OF THE ASSESSEES CASE VIS-A-VIS THE DECISION OF ITAT WITH REGARD BALAJI TEXTILE INDUSTRIES (P) LTD VS ITO 49 ITD 177 (BOM) WITH REGARD TO PURCHASE OF GRAY CLOTH FROM BH IVANDI IN WHICH CASE THE ITAT DIRECTED THAT THE PURCHASES FROM UNTRACEAB LE PARTIES WERE TO BE ACCEPTED AS GENUINE. 9. WE HAVE CONSIDERED VARIOUS DOCUMENTS PLACED IN T HE PAPER BOOK THE SUBMISSIONS OF THE LEARNED COUNSEL THE DEPARTME NTAL REPRESENTATIVE AND PERUSED THE RECORDS. THE MAIN CONTENTION BY TH E ASSESSING OFFICER IN REJECTION OF BOOKS OF ACCOUNT IS THAT THE ASSESSEE HAS PURCHASED ITS YARN AND GRAY CLOTH FROM BHIVANDI. IT IS DIFFICULT TO G ET CONFIRMATION FROM BHIVANDI PARTIES AND THERE ARE VARIOUS ORDERS OF TH E ITAT EITHER CONFIRMING THE PURCHASES ON FACTS OR RESORTING TO E STIMATION TO GP DEPENDING ON EACH FACT OF THE CASE. LEARNED COUNSE L RELIED UPON VARIOUS CASE LAWS FOR REJECTION OF BOOKS OF ACCOUNT AND EST IMATION OF GP. WE ITA 6841/MUM/2008 RAMESHKUMAR RAWAL 5 HAVE ALSO PERUSED THE DETAILS FILED IN VARIOUS VOLU MES OF THE PAPER BOOK AND SUBMISSIONS MADE. AS SEEN FROM THE ASSESSEES BUSINESS TRANSACTIONS ASSESSEE IS WHOLESALE TRADER IN GRAY CLOTH AND YARN PURCHASE. THE MONTH-WISE QUANTITATIVE DETAILS FURN ISHED ARE AS UNDER: MONTH PURCHASE SALES AUGUST 55946.000 55946.000 DECEMBER 37338.250 37338.250 JANUARY 233853.850 254577.850 FEBRUARY 70376.500 49652.500 MARCH 1522.000 1522.000 TOTAL 399036.000 399036.000 DETAIL OF MONTH WISE YARN PURCHASE & SALES QUANTIT ATIVE MONTH PURCHASE SALES AUGUST 500.00 0.00 NOVEMBER 19317.500 19317.500 DECEMBER 32628.400 32628.400 JANUARY 3250.000 3750.000 FEBRUARY 8160.000 8160.000 MARCH 510.000 510.000 TOTAL 64365.900 64365.900 AS CAN BE SEEN FROM THE ABOVE THERE IS NO CLOSING STOCK AT THE END OF THE YEAR. THE SURPRISING ASPECT OF THIS STATEMENT OF G REY CLOTH IS THAT IN THE MONTH OF JANUARY THE PURCHASES WERE 233853.850 METE RS WHEREAS SALE ITA 6841/MUM/2008 RAMESHKUMAR RAWAL 6 WAS 254577.850. FROM WHERE THE ASSESSEE COULD SELL MORE THAN PURCHASE HAS NOT BEEN EXPLAINED AS ENTIRE STOCK OF AUGUST AND DECEMBER WERE SOLD IN RESPECTIVE MONTHS. THE PURCHASES OF Y ARN CLOTH MADE IN AUGUST WAS SOLD IN JANUARY AS PER THE ABOVE STATEME NT. WE ARE NOT IN A POSITION TO EXAMINE THE INDIVIDUAL PURCHASES AND SA LES AS BOOKS OF ACCOUNTS WERE NOT PLACED BEFORE US BUT SUFFICE TO SAY THAT ON THE BASIS OF THIS VERY STATEMENT THE ENTRIES IN THE BOOKS OF ACCOUNTS CANNOT BE RELIED UPON. EVEN PAGE 3 OF THE PAPER BOOK PERTAINI NG TO THE VALUES OF GRAY CLOTH ALSO INDICATE THAT PURCHASES WERE RS.23 58 688 IN THE MONTH OF JANUARY WHEREAS SALES WERE SHOWN AT RS 29 39 854. SINCE SALE VALUE WAS MORE THAN THE PURCHASES ASSESSING OFFICER COULD NO T HAVE NOTICED THE DISCREPANCIES BUT AS FAR AS THE QUANTITY IS CONSID ERED QUANTITY SOLD IS MORE THAN PURCHASES. THIS WAS NOT RECONCILED NOR E XPLAINED. AS ALREADY POINTED OUT AT THE TIME OF ARGUMENTS THE GP SHOWN IN THE P&L ACCOUNT IS VARYING WITH THE WORKING OF THE GP SHOWN IN VARIOUS WORKINGS OF THE ASSESSEE WHICH INDICATES THAT THE DIRECT EXPENDITU RE PERTAINING TO THE PURCHASE OR SALES HAS NOT BEEN CONSIDERED WHILE ARR IVING AT THE GP FIGURES. MAY BE IT WILL VARY LITTLE BIT BUT THIS INDICATES THAT ASSESSEE TRIED TO JUSTIFY A HIGHER GP WHEREAS THE GP WAS LESS THAN WHAT WAS STATED. SINCE THERE IS FAILURE ON THE PART OF THE ASSESSEE TO SUBSTANTIATE ALL THE PURCHASES TO THE SATISFACTION OF THE ASSESSING OFFI CER CONSIDERING THE FACT THAT ASSESSEE HAS DONE BUSINESS ONLY THIS YEAR AND THAT TOO HAS NOT CONTINUED THE BUSINESS IN THE LATER YEARS WE ARE O F THE OPINION THAT IT WOULD JUSTIFY ESTIMATION OF 7% GP ON THE GRAY CLOTH SALES AS AGAINST 6.11% SHOWN BY THE ASSESSEE AND 3% GP ON THE YARN C LOTH AS AGAINST 2.31% SHOWN AGAINST YARN CLOTH. THE ASSESSING OFFI CER IS DIRECTED TO RE- COMPUTE THE ADDITION ACCORDINGLY. ITA 6841/MUM/2008 RAMESHKUMAR RAWAL 7 10. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21ST MAY 2010. SD/- SD/- (N V VASUDEVAN) (B RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 21ST MAY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIV MUMBAI 4. THE CIT 14 MUMBAI 5. THE DR D BENCH ITAT MUMBAI BY ORDER / / TRUE COPY // ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI * CHAVAN ITA 6841/MUM/2008 RAMESHKUMAR RAWAL 8 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 13.05.10 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 17.05.10 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR. PS/PS 7 FILE SENT TO THE BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER